Wednesday, July 11, 2012

Corruption Watch!

The misconduct of the financial industry no longer surprises most Americans. Only about one in five has much trust in banks, according to Gallup polls, about half the level in 2007. And it’s not just banks that are frowned upon. Trust in big business overall is declining. Sixty-two percent of Americans believe corruption is widespread across corporate America. According to Transparency International, an anticorruption watchdog, nearly three in four Americans believe that corruption has increased over the last three years.

We should be alarmed that corporate wrongdoing has come to be seen as such a routine occurrence. Capitalism cannot function without trust. As the Nobel laureate Kenneth Arrow observed, “Virtually every commercial transaction has within itself an element of trust.”

Company executives are paid to maximize profits, not to behave ethically. Evidence suggests that they behave as corruptly as they can, within whatever constraints are imposed by law and reputation. In 1977, the United States Congress passed the Foreign Corrupt Practices Act, to stop the rampant practice of bribing foreign officials. Business by American multinationals in the most corrupt countries dropped. But they didn’t stop bribing. And American companies have been lobbying against the law ever since.

Extrapolating from frauds that were uncovered during and after the dot-com bubble, the economists Luigi Zingales and Adair Morse of the University of Chicago and Alexander Dyck of the University of Toronto estimated conservatively that in any given year a fraud was being committed by 11 to 13 percent of the large companies in the country.

Yet it may be wrong to shrug off the latest boomlet of corporate crimes and misdemeanors as a mere reflection of the business cycle. Americans appear to believe that corruption has become more prevalent over the years. And some indicators suggest they may be right.

The most pointed evidence that breaking the rules has become standard behavior in the corporate world is how routine the wrongdoing seems to its participants. “Dude. I owe you big time!... I’m opening a bottle of Bollinger,” e-mailed one Barclays trader to a colleague for fiddling with the rate and improving the apparent profit of his derivatives book.

It’s difficult to know why corruption may be spreading. But there are a few plausible explanations. From globalization to rising income inequality to the growing role of corporate money in political campaigns, political and economic dynamics may have increased both the scope of corporate wrongdoing and the incentives for business executives to bend, or break, the rules.

Globalization can encourage corruption, as companies compete tooth and claw for new markets. And the furious rush of corporate cash into the political process — which differs from bribery in that companies pay politicians to change laws rather than bureaucrats to ignore them — is unlikely to foment ethical behavior.

The inexorable rise of income inequality is also likely to encourage fraud, fostering resentment and undermining trust in capitalism’s institutions and rules. Economic research shows that participants in contests in which the winner takes all are much more likely to cheat. And the United States is becoming a winner-takes-all economy.

...So assuming that he worked for a full eight hours on Monday, that comes out to a nice $5.5 million an hour — some 765,000 times the national minimum wage. His relocation alone is over half the average annual salary for an American worker. Hopefully he didn’t move too near any of his former colleagues. How embarrassing to run into them at the country club, what with Johnson being unemployed and all!

Dr. Drew Cashes In (Slate). It's not just for TV quacks: Drug company money is also swirling around NIH, FDA, and possibly your own doctor.

Thanks to the Justice Department, we now know of a Dr. Drew payday large enough to trigger a reverie or two. As part of its monstrous $3 billion settlement with the pharmaceutical giant GlaxoSmithKline (GSK), the DOJ unsealed documents showing that the dear doctor had taken in at least $275,000 for "services for Wellbutrin."

Precisely how can one service an antidepressant like Wellbutrin? According to the government's complaint, Dr. Drew was hired to "deliver messages about [Wellbutrin SR] in settings where it did not appear that Dr. Pinsky was speaking for GSK." After Pinsky suggested that Wellbutrin might be responsible for increasing a woman's orgasm rate—to as many as 60 orgasms in a good night—an internal GSK memo noted approvingly that Dr. Drew had "communicated key campaign messages" about Wellbutrin to the public.

Louis Freeh's report, released on Wednesday, laid much blame in the hands of four of Penn State's "most powerful people": President Graham Spanier, Vice-President Gary Schultz, athletic director Tim Curley and head football coach Joe Paterno.

They "failed to protect against a child sexual predator harming children for over a decade," Mr Freeh wrote.
The four men knew that Sandusky was under investigation by university police for allegations of child sex abuse on campus as early as 1998